Hospitality sector sees boom in occupancy on rising tourist arrivals

Though hundreds of new hotel rooms are coming up across the country, demand is expected to grow faster than supply at more than 10% a year.Ashish Kulshrestha&Anumeha Chaturvedi | ET Bureau | September 10, 2016, 14:00 IST

HYDERABAD|NEW DELHI: The hospitality sector is witnessing improved occupancy ratios and average room rates (ARR) in most cities with more foreign and domestic tourists checking in on the back of lower air fares. The trend is expected to continue helped by implementation of the seventh pay commission and investor-friendly policies.

Several hotel chains are expected to improve their top and bottom lines, and debt servicing this year. Foreign tourist arrivals in the country increased 8.9% year on year in the first half of 2016, up from 3.7% growth a year ago, industry experts and analysts said. Domestic tourist visits, too, improved to over 20% from 11.7% a year ago, they said.

Though hundreds of new hotel rooms are coming up across the country, demand is expected to grow faster than supply at more than 10% a year, helping improve overall room occupancy ratios.

In the quarter ended June average occupancy ratio in the country’s hospitality sector increased 2% year on year, according to a new report of credit rating agency ICRA. “Average room rates have marginally moved up to Rs 5,300 crore due to an increase in destination weddings, MICE events, defence and political stays,” said Pavethra Panniah, vice-president at ICRA.

This trend is expected to strengthen across most markets, barring Kolkata, this financial year, ICRA said. Markets with significant premium supply in the near term like Bengaluru would also face some rate pressure, it said.

Raj Rana, CEO for South Asia at Carlson Rezidor, said occupancies across its brands such as Radisson and Radisson Blu have grown this year over last year and their average room rates have also strengthened. “This is happening despite the strong headwinds of excess supply.

The summer season has been better than last year and we are seeing an uptick in corporate travel,” Rana said.

Hotel chain Accor said it expects strong growth in demand and occupancy rates for the rest of the year, especially the peak season with festivities around the corner. “Steady flow of foreign tourists, pickup in leisure activities and growing business travel have fuelled the growth in occupancy ratios and ARRs. Government initiatives such as Make in India, Digital India and the e-visa scheme will drive demand further,” said Arif Patel, vice-president for sales, marketing and distribution at Accor India.

Mid-market chain Lemon Tree said its average room rates have increased 9% this year over last year. Our Red Fox Hotel in Hyderabad has achieved 100% occupancy over 100 consecutive days, and has its eyes set on 150 days,” said Vikramjit Singh, president at Lemon Tree Hotels.

“Economic conditions are better and state governments have also been aggressive in promoting tourism. Key destinations like Turkey, Greece and France have been impacted through other developments and that has also played a part in influencing tourists,” he said. According to ICRA, top line for 12 listed hoteliers in the first quarter of 2016-17 grew by 3%, a clear improvement from 1.1% a year earlier. While revenues grew, the growth in margins has been relatively flat.

“Only when there is an improvement in average room rents (ARRs) which is primarily driven by arrival of foreign tourists, we can see an improvement in margins as our revenue growth is mainly on account of growth in occupancies. Also, we can expect an improvement in margins by FY2018,” said Panniah of ICRA.

Currently, the Goods and Services Tax (GST) is levied at 12 per cent on payments made for under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale.